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  • 8/19/2019 Movement Goods India


    Movement of goods in IndiaReport by EY and RAI

    December 2013

  • 8/19/2019 Movement Goods India


    Ernst & Young LLP and the Retailers Association of India are proud to release this publication,

    Movements of goods in India, at the annual Retail Supply Chain Summit at Hotel Westin in Goregaon

    (E), Mumbai on 5 December 2013. The publication focuses on the state of movement of goods in

    India in India’s retailing sector, the challenges faced in the business and regulatory domain, and the

    opportunities offered in it.

    India’s retail sector is poised for growth, with growing domestic demand and easing of regulationson FDI. The entry of foreign retailers and the growth of e-tailing are expected to give a boost to the

    sector. However, it is essential that movement of goods is improved in the country in order to enable

    the next wave of growth in retail.

    Retail sector in India grapples with challenges in movement of goods due to an evolving tax/

    regulatory structure, delays at check-posts, the low penetration of technology and inefcient

    collaboration between vendors and retailers

    These challenges provide opportunities for innovative technology-based solutions such as RFID,

    GPS, the Warehouse Management System and Collaboration tools. The industry is pinning its hopes

    on the successful implementation of the Goods and Services Tax (GST) in the country, to simplify

    and optimize the regulatory environment.

    This publication aims to highlight key opportunities and challenges in movement of goods in the

    retail sector. It attempts to provide a base for discussion among industry stakeholders to help them

    navigate the complex structure of movement of goods in India, and related challenges

    and opportunities.

    With kind regards,

    Pinaki Mishra 

    Partner, Ernst & Young LLPLeader - Retail & Consumer Products

    Kumar Rajagopalan

    CEORetailers Association of India (RAI)


  • 8/19/2019 Movement Goods India


    Table of contents

    1 Current state of movement of goods in India.........................................................................................2

      1.1 State of road transport in India.................................................................................................3

      1.2 How does India fare against other countries in its movement of goods? ......................................3

      1.3 Tax and regulatory landscape in India .......................................................................................4

    2 Movement of goods in India — challenges and opportunities ...................................................................6

      2.1 Business and operational — challenges and opportunities ...........................................................7

      2.2 Challenges relating to taxes, regulations and interstate movement ..........................................13

    2.3 Possible interventions by state/Central Government ...............................................................15

      2.4 Comparison with China (taxation and regulations) ...................................................................17

    3 Conclusion ........................................................................................................................................20

    4 Appendix ..........................................................................................................................................22

  • 8/19/2019 Movement Goods India


    2 Movement of goods in India

    1. Current state ofmovement of goodsin India

  • 8/19/2019 Movement Goods India


    3Movement of goods in India

    1.1 State of road transport in India

    India has the second-largest road network in the world,

    spanning over 4 million km. Roads constitute the most

    important mode of transport in the country, carrying 60% of

    the country’s total freight trafc and 85% of its total

    passenger trafc.1

    Roads (total length -

    4.7 million kms)

    State highways

    (0.15 million km,

    3.3% of total


    National Highways

    (0.08 million km,

    1.7% of total


    District and rural roads

    (4.5 million km,

    95% of total


    The value of road and bridge infrastructure in India is expected

    to grow at a CAGR of 22.2% and reach US$9.2 billion by 2017.1 

    1. Ministry of Road, Transport and Highways (MoRTH) – Annual Report 2012-13

    2. “2nd Edition: Operational Efciency of National Highways for Freight Transportation by Road in India” – A joint study by the Transport Corporation of India Ltd. &

    IIM Calcutta3. Ernst & Young Infrastructure Summit, 2012 with FICCI

    4. Ernst & Young Infrastructure Summit with FICCI, 2012

    5. Refer to Appendix 5.1

    6. “Report of the Working Group on Central Roads Sector,” Planning Commission website











    2013 2014 2015 2016 2017

        $    B

       i   l   l   i   o   n



    While road freight volumes and the number of road vehicles are

    growing at a CAGR of 9.1% and 10.8%, respectively, the growth

    rate of the length of roads lags behind at 4%. This indicates that

    growth of road infrastructure is not keeping up with the growth

    in demand.2

    The last few years have been difcult for development of

    highways in the country and physical achievement has fallen

    short of its intended target. While the goal was to achieve 20

    kms per day, the National Highway Authority of India has been

    able to complete only 13.7 kms per day (2009–10) and 10.4

    kms per day (2011–12).3 

    1.2 How does India fare against

    other countries in its movement

    of goods?

    At a macro level, India spends much more than developed

    markets in terms of logistics costs. This can be primarily

    attributed to inadequate infrastructure and the fragmented

    nature of the industry in the country.4

    Cost of logistics as a percentage of India's GDP1











    India’s road network is dominated by rural roads. The share

    of the National Highways and motorways5 in its overall road

    network is miniscule, when compared with developed markets.

    Moreover, only ~24% of the highways have four lanes and meet

    required standards, which further exacerbates the problem.6

    Share of National Highways and motorways in total

    road length

















    Korea Republic



    Expressways or motorways National Highways

  • 8/19/2019 Movement Goods India


    4 Movement of goods in India

    There is signicant room for improvement in the transit time

    between major cities as well. The average transit time by road

    or train between cities in India is signicantly higher than the

    time taken for similar distances in China.

    Other parameters of comparison

    Logistics efciency indicators India — ranking

    Logistics performance index (out of 155)7 46

    Quality of overall infrastructure (out of 148)8 85

    Quality of road infrastructure (out of 148)8 84

    Efciency indicators in

    road transportation

    India Global

    Average truck speed (inkm/ph)

    20–40 60–80 (developedcountries)

    Average truck distancecovered in a year (kms)



    Average truck distanceper day (kms)

    250–400 500 (BRICS) 700–800 (US & Europe)

    Total length ofexpressways (kms)

    ~1000 74,000 (China)

    7. Logistics Performance Index (2012) published by the World Bank - Ranking out of 155 countries. Refer to Appendix 5.2

    8. The Global Competitiveness Report (2013) published by the World Economic Forum – Ranking out of 148 countries. Refer to Appendix 5.3

    1.3 Tax and regulatory landscape

    in India

    Under the federal system of governance followed in India, the

    legislative and taxation powers have been clearly demarcated

    between the Centre and the states. The power to impose taxes

    on sale of goods within a state (where the movement of the

    goods sold remains within a single state’s jurisdiction) rests with

    the respective state governments. The Central Government

    is empowered to tax inter-state sale of goods (where themovement of goods sold takes place between and across one

    or more state boundaries, with sales having occasioned this

    movement of goods) as well as pan-India supply of services

    (by levying Service Tax). The multiplicity of indirect tax-related

    legislations is therefore the direct consequence of

    the constitutional structure of taxation in India. While this

    division of power ensures proportionate tax-related revenues

    generated in the state and Central governments, it is a

    signicant source of complexity for tax payers in India, and

    leads to substantial overlapping and sometimes double taxation

    of various transactions.

    Year INR Billions

    Sales Tax collections

    2011-12 3,508.74

    2010-11 2,962.40

    2009-10 2,314.61

    2008-09 1,908.17

    2007-08 1,677.31

    Given the structure of the Indian Indirect Tax administration

    (as previously mentioned), transactions in goods within India

    are often exposed to multiple taxes. Sale of goods within a

    state is subject to a state-level VAT, which may vary from

    4% to 15%. Inter-state sales of goods are subject to Central

    Sales Tax (CST), which varies from 2% to 15%. Furthermore,

    transportation charges incurred on movement of goods are

    subject to Service Tax at an effective rate of 4.8%, while stock

    movements between inter-state branches or stocking locations

    are not subject to VAT/CST (although such movements often

    trigger input tax credit reversals in the range of 2% to 5% for

    the branches transferring the goods).

    In addition to the intricacies relating to taxation of supply of

    goods at the point of sale, a number of state governments

    also levy an Entry Tax (ET) in the range of 2% to 5% on entry

    of (notied) goods into a local or municipal area in the state.

    Source: Economic Survey of India 2012-13

    States Octroi Entry Tax

    Andhra Pradesh No No

    Delhi No No

    Gujarat No Yes

    Karnataka No Yes

    Madhya Pradesh No Yes

    Maharashtra Yes No

    Punjab No Yes

    Rajasthan No Yes

    Tamil Nadu No No

    Uttar Pradesh No Yes

    West Bengal No Yes

    Source: State Legislations

  • 8/19/2019 Movement Goods India


    5Movement of goods in India

    Applicable ETs are generally not eligible under law as input

    tax credits that are creditable against output tax (VAT/CST)

    liabilities and contribute directly to the supply chain costs of the

    goods for the end consumer.

    In India, goods in movement, in addition to being subject to

    taxes, also have to contend with intra-state and border check-

    posts and deal with associated documentation including road

    permits, waybills, etc.. Every state in India has multiple Sales

    Tax check-posts along its national highways and borders to

    monitor movement of goods through it and prevent leakage or

    evasion of taxes. Road permits monitor movement of

    goods in and out of the states, accounting and reconciling that

    these have been subject to VAT/CST in the right jurisdiction

    or territory.

    Source: State Legislations

    State In-bound Out-bound

    Andhra Pradesh Yes Yes

    Delhi No No

    Gujarat Yes Yes

    Karnataka Yes Yes

    Madhya Pradesh Yes Yes

    Maharashtra No No

    Punjab Yes Yes

    Rajasthan Yes Yes

    Tamil Nadu No No

    Uttar Pradesh Yes No

    West Bengal Yes Yes

    On the compliance front, every state has its own requirements

    in relation to registration and payment of tax as well as

    tax returns, forms, permits, audits, assessments, etc., and

    processes and procedures can differ signicantly from state to

    state. Although there have been signicant efforts made in

    the area of automation or digitization of compliance procedures

    by many states, much more needs to be done in terms of

    their moving from their current levels of automation or

    digitization to a robust, efcient computer-based and

    compliant administration.

    The expected GST legislation has the ability to standardize

    and harmonize legislations in relation to movement of goods

    in India and provide a simplied system for taxation and

    movement of goods in the country.

  • 8/19/2019 Movement Goods India


    6 Movement of goods in India

    2. Movement of goodsin India – challengesand opportunities

  • 8/19/2019 Movement Goods India


    7Movement of goods in India

    We have segmented the challenges into two major sections:

    1. Business and operational

    2. Tax, regulatory and interstate movement-related

    2.1 Business and operational

    challenges and opportunities

    The business and operational challenges have been furthergrouped under the following heads:

    1. Infrastructure-related

    2. Supply chain-related

    3. Logistics service provider-related

    4. Shortage of skilled manpower

    2.1.1 Infrastructure-related

    Infrastructural-related bottlenecks constitute the primary

    challenge faced by retailers, transport providers and logistics

    providers. In addition, inadequate infrastructure in the country

    limits the geographic reach of retailers.

    Increased investments in development of infrastructure have

    not yet yielded the desired results in terms of good roads, cold

    chains, warehouses, logistics parks and hubs, etc.

    • Road network:

    • India loses signicant value every year due to

    congestion (and wastage of fuel), the slow speed of

    freight vehicles and the waiting time at toll plazas and

    checking points.9

    • Vehicles being stopped at state border check-posts

    and on the roads are a major cause for delays. Trucks

    are stopped frequently to ll forms required by various

    government departments, checking of documents

    and physical checking of the vehicles, drivers and

    consignments by Regional Transport Ofces and

    trafc police, as well as to collect highway toll and

    taxes. It is estimated that 40% of the time lost on

    the road is due to stoppages at state border check-

    posts alone.10

    9. “2nd Edition: Operational Efciency of National Highways for Freight Transportation by Road in India” – A joint study by the Transport Corporation of India Ltd. & IIM

    Calcutta10. The Global Competitiveness Report (2013) published by the World Economic Forum – Ranking out of 148 countries. Refer to Appendix 5.3

    10. The Indian Warehousing Industry: An Overview, October 2013 – EY and CII Report

    11. Ministry of Road Transport & Highways, Annual Report 2012-13

    • The share of surfaced road —concrete and bituminous

    — in the overall road network is a mere 54% 11.Poor

    road quality leads to wear and tear in vehicles.

    • Frequent breakdowns and inefcient vehicular

    management leads to a slow average speed of 20

    kms per hour on Indian roads. Moreover, trucks in ply

    for 20 days a month against an average of 25 days a

    month in other developing countries.9

    Warehouse infrastructure10



    Organized Unorganized

    • This high fragmentation and dominance of

    unorganized players, due to various applicable taxes

    at the state and central levels, is a pressing concern. It

    has led to a dearth of quality warehouse infrastructure

    in the country.

    • India’s warehousing sector is plagued with low capital

    and operational efciencies (low utilization and poor

    throughput/unit space).

    • There is limited value addition that is specic to

    the retail industry. This stems from an inadequate

    understanding of the sector.

    • Most warehouses are manually operated or have

    inappropriate levels of automation.

    • Other infrastructure

    • Cold chain infrastructure10

    • India’s cold chain market is highly fragmented

    with more than 3,500 companies. Organized

    players constitute only ~8%–10% of the market

  • 8/19/2019 Movement Goods India


    8 Movement of goods in India

    • The absence of cold chain infrastructure leads

    to wastage levels of around ~40% of agricultural

    produce and perishables.

    • It is estimated that the current cold storage

    infrastructure can only cater to 11% of its

    total produce.

    • Moreover, ~80% of storage capacity is for a

    specic single commodity (potato) and 80% of

    reefer vehicles only cater to dairy products.

    • Cold stores are high xed cost businesses by

    nature, entailing heavy initial investments in

    refrigerator units and land.

    2.1.2 Supply chain-related challenges

    Multiple intermediaries in supply chain

    India’s retail supply chain suffers due to the presence of

    multiple intermediaries. As seen below, there are as many

    as ve intermediaries in a typical supply chain for perishable

    commodities such as fruits and vegetables.



    Self consumption

    APMC Processing units

    Primary wholesaler CA/CFA/Depots

    Secondary wholesaler Wholesalers

    Medium and smallretailers

    Medium and smallretailers



    1 2 4 53

    Not only do these intermediaries result in a signicant time lag

    in products reaching stores from farms, but they also increase

    the cost to the nal customer by adding their own margins.

    • Collaboration and vendor management-related


    • There is no common information exchange platform

    between retailers and their vendors, which leads to

    lack of collaboration in the end-to-end supply chain.

    Retailers are many times unprepared and unawareof the delivery schedules of suppliers due to

    communication- and collaboration-related gaps.

    Furthermore, day- and time-related scheduling of

    delivery of stocks is uncertain, and in many cases,

    time slots are not xed in advance.

    • Another common issue is non-availability of return

    loads. (Vehicles often have to wait three to four days

    to get a return load or travel as far as Visakhapatnam

    from Kolkata or Guwahati without load to secure a


    • The practice of sending advance shipping notes is

    seeing slow adoption in India. Retailers often donot get to know in advance the exact quantities

    dispatched by vendors vis-à-vis quantities actually

    received at warehouses or distribution centers.

  • 8/19/2019 Movement Goods India


    9Movement of goods in India

    How a global retailer improved its collaboration with vendors by using technology

    Case study


    A leading global retailer wanted to improve the efciency of its supply chain and reduce its costs. It sought to leverage

    technology to support its supply chain and business strategy of offering low prices to consumers.


    • The company developed a supply chain visibility tool in-house to facilitate its communication and collaboration with

    its supply chain partners. The three major functions of the tool were to store data, to share it with the company’s

    vendors, and help in shipment routing assignments. Through this tool, it provided suppliers with large amounts of raw

    data relating to their product sales in the company’s stores. It also informed them that all relevant information could

    be downloaded into vendors’ data managing systems, and manipulated and analyzed in any way that would help them

    manage their products better.

    • The company also uses another system to automate its replenishment process in its retail stores. According to users,

    the tool considers two important variables when making inventory-related decisions —the point of sale data and the

    quantity of inventory in hand. Taking these two factors, along with trends and variability of demand and supply, the

    tool also made decisions on when and how much inventory to order.


    • With this data, vendors have been able to make their supply chains more efcient and improve their services to thecompany

    • The rst tool makes collaborative efforts on making vendor-managed and co-managed inventory.

    • The second tool enables the replenishment process to be made more accurate with less human intervention

    • Demand-forecasting complexities

    • Retailers nd it difcult to forecast the demand

    for products in different regions due to the varied

    tastes and habits of customers across India. This

    leads to inefcient management of inventory at

    retailers, distribution centers and outlets. Some of the

    challenges faced include:

    • Seasonal uctuations in demand patterns for

    certain products

    • Regional/Local variances in demand patterns

    • Geographically widespread nature of the market

    • Low adoption of forecasting tools

    • Inefcient supply chain management

    • Currently, retailers suffer due to pilferage of goods.

    The quantity of products received in warehouses does

    not match with the ordered quantity. Moreover, once

    out of a vendor’s location, there is no way in which

    retailers can track the status of goods in transit.

    In some cases, the wrong products are loaded on

    trucks, which results in additional costs for retailers.

    Furthermore, some of the processes conducted by

    DCs consume a signicant amount of time when

    executed manually.

  • 8/19/2019 Movement Goods India


    10 Movement of goods in India

    How a global logistics provider is enhancing its customer service by leveragingtechnology

    Case study


    A leading global third-party carrier wanted to improve its customer service and reduce its carbon footprint, and thereby,

    become more efcient in its deliveries.


    • A “smart truck pilot” project was undertaken by the company to test its innovative route planning.

    • Its implementation of RFID tags and readers rst ensures that the right packages are on the right truck. Furthermore,

    its dispatch team sends out an optimum route, based on real-time trafc conditions, to retailers.

    • Built-in GPS guides the driver to the rst delivery and RFID checks to ensure that the right package is delivered. Turn-

    by-turn directions are then sent to the truck driver to guide the truck to its second delivery, and so on.


    • The enhanced visibility provided by the RFID system conrms the status of all the packages at any given time, and

    ensures that they are delivered correctly. This reduces fuel costs and emissions through optimized routing and

    reduction in the number of re-deliveries

    How an Indian retailer uses automation to improve process efciency at itsdistribution centers

    Case study


    • The company is a big-box hypermarket with three stores covering more than 220 thousand sq. ft. All the hypermarkets

    have “back-stores” to store merchandize, but these can only hold a day’s worth of inventory because retail space is


    • The bulk of the company’s inventory is maintained at DCs on the outskirts of cities. These DCs handle around a million

    SKUs from 1,200 vendors in a year

    • DCs’ processes have to be automated to ensure on time fulllment of store transfers. The company therefore decided

    that the solution needed to run on a mobile device to optimize various processes to reduce the time it spends in the DC.Solution

    • Today, when a product arrives at a DC, the receiving team loads its purchase order on a handheld scanner device. This

    helps to reduce manual entry (and resultant errors).

    • Once items are received, the warehouse management system prints a “put-away” document, which is now available on

    the scanner and guarantees that a DC staffer puts away products in their right places.

    • Finally, a “pick” document is assigned to a “picker” using a wireless hand-held scanner when it is time for inventory to

    be moved to a store. This document indicates the exact location of a product and the number of pieces that need to be

    collected. An error message informs the picker if an item is not on the pick list.


    • Within a month of implementation of the solution, staff costs at the DC fell by 23% and sales rose by 25%.

    • As envisioned, turnaround time fell by 12 hours because errors due to data being “misread” were virtually eliminated.

    • The solution also created a unique bond between IT and business processes, and led to happier employees.

  • 8/19/2019 Movement Goods India


    11Movement of goods in India

    2.1.3 Logistics service provider-related


    • Unorganized and fragmented road freight transport


    Around 70% –75% of the trucking industry is dominated by

    small transport operators with eet sizes of a maximum of

    ve trucks. At the other end of the spectrum, only about

    4% own more than 20 trucks.




    3% 4%

    < or = 5 trucks

    6 - 10 trucks

    11 - 15 trucks

    16 - 20 trucks

    > 20 trucks

    Source: National Skill Development Corporation

    This fragmentation of the market leads to overloadedtrucks and fatigued drivers, since only one driver per truck

    is deployed on long trips, whereas two or more drivers

    should be driving in shifts on such trips.

    This fragmented ownership structure leads to a shortage

    of established and organized transport providers with

    adequate capability and a signicant presence in the


    • Only a few logistics service providers with pan-India


    The 3PL market is at a nascent stage in India. There

    are hardly any players with a pan-India presence in the

    country. Therefore, retailers often need to take on multiple

    local players with expertise in their particular regions,

    especially in the case of last-mile deliveries. In fact, they

    frequently have four or more logistics providers catering to

    different regions.

    • Dearth of 3PLs specializing in specic product


    • According to retailers of apparel, there are only a

    few logistics providers with the requisite experience

    and expertise in handling products in the apparel and

    fashion category.

    • e-tailers are facing challenges in their search for

    logistics service providers who can cater to the

    former’s specic needs in terms of reach to several

    pin code areas, last-mile deliveries, processing of

    cash on delivery and reverse logistics capabilities to

    manage inventory returns. This has led to some e-tailers

    developing their own in-house logistics teams.

    • Retailers of perishable goods face a similar challenge

    in nding logistics service providers with the requisite

    competence and cold chain infrastructure needed to

    handle such products.

    • Several retailers in the market are on the lookout for logisticsservice providers that also provide a variety of value-added

    services in the form of warehousing capabilities, inventory

    and order management, product labelling, packing and

    assembly, cross-docking, customs clearance, etc. More often

    than not, most providers only cater to a particular component

    of the logistics value chain —transport or warehousing. There

    is therefore a signicant demand for integrated end-to-end

    logistics service providers.

    2.1.4 Shortage of skilled manpower

    India’s transportation and logistics sector faces a severe shortage

    of skilled manpower, and this is especially critical in the case of

    integrated logistics providers.

    The unorganized and fragmented nature of the industry has led

    to problems relating to inefcient organization, lack of leadership,

    disjointed skills and positions, and lack of process-driven IT

    systems. This is particularly true at the nascent stage of the

    industry, which is struggling to overcome critical infrastructure-

    related and organizational challenges,

    According to a report produced by the National Skill Development

    Corporation, the various skill gaps witnessed in the road

    transportation sub-segment include12


    • Inadequate knowledge of procedures, paper-work for inter-

    state movement and taxation related aspects

    • Lack of knowledge of modern warehousing and inventory

    management practices

    • Inadequate knowledge of new technologies in the IT domain

    in the transportation sector, and on the RFID, GPS and

    vendor-collaboration platforms

    • Inadequate availability of drivers with sufcient training and

    experience in handling increasing tonnage and high-capacity

    trucks, and following GPS directions

    • Drivers’ ignorance of safe driving practices and specialprecautionary measures in transportation of sensitive

    materials such as chemicals and petroleum tankers

    12. National Skill Development Corporation: Human Resource & Skill Requirements in the Transportation, Logistics, Warehousing & Packaging Industry (2022) – a report

  • 8/19/2019 Movement Goods India


    12 Movement of goods in India

    How an American manufacturer partnered with a specialized reverse logistics providerto enhance its returns capabilities

    Case study

    Reverse logistics has traditionally been placed low in the supply chain hierarchy. However, apparel businesses, service

    providers and technology companies have recently begun to understand that strategic reverse logistics management can

    have a huge and positive impact on their overall operations. Companies do not usually proactively obtain information about

    products sent back to their warehouses. In the case of apparel companies, in particular, growing their online operations

    means they need to pay more attention to this process.


    • The company is a leading manufacturer and retailer of women’s high-quality, comfortable and fashion-right shoes and

    boots at affordable prices. It is based out of New Jersey.

    • It has three divisions — retail, wholesale and direct marketing — that are engaged in catalog and internet sales.


    • Before entering the partnership, the company did not have the ability to proactively manage its returns.

    • The onus would be on the consumer, who was responsible for packing the order, shipping it back and following up on


    • The company was not able to provide the required level of customer service for returns it offered on the forward

    supply chain.

    • It was also unable to analyze returns-related data to gauge trends in the merchandize being sent back or prepare its

    warehouse ahead of time for a large volume of returns.


    • While searching for reverse logistics technology, the company evaluated the key players, sent out an RFP and searched

    for a system that would remove the burden of returns from the consumer.

    • The company also wanted a solution that was scalable and could provide rich data on the reverse supply chain.

    • After a nine-month selection process, it selected a solution from a logistics provider.

    • During its implementation, ensuring that the logistics provider’s technology was aligned properly with the back-end

    systems used by the company and its warehouse partners was its top priority.

    • The companies went through a long and detailed process to make sure that data les were set up properly, that the

    systems could “talk” to each other and that data was easy to decipher.

    • Currently, almost 75% of the company’s returns “come back” through the chosen solution.

    • Every order placed on its website or mail-order catalog now comes with a pre-paid, pre-addressed and bar-coded label.

    When returning orders, customers x the label to their packages and drop these off wherever the U.S. Postal Service

    retrieves mail.

    • A dynamic bar code links a package to the customer’s invoice and enables its visibility from early in the returns

    process. This helps customer service representatives to proactively address customers’ exchanges or credit needs.

    • The returns are scanned three times during the return cycle — at the pick-up point, the logistics provider’s regional

    facilities and the company’s warehouse. This enables the company to keep its customers updated and manage

    customer expectations.

    • Visibility of this data also helps the company analyze its returns trends to look for badly performing styles or colors

    and forecast demand more effectively

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    13Movement of goods in India

    2.2 Tax, regulatory and interstate

    movement challenges

    a) Unique supply chain

    The retail supply chain has a number of components including

    manufacturers, distribution centers, city hubs, retail stores

    and consumers. The movement of goods from the place

    of manufacture to end consumers is managed by various

    intermediaries including transporters, clearing and forwarding

    agents and third-party logistic service providers (3PL). Given

    India’s geographical spread, the span of retail stores and

    the magnitude of consumers, goods have to be maneuvered

    through various warehouses, storage points, check posts,

    ownership transfers and bulk splitting. This process is very

    cumbersome and involves a considerable amount of paperwork

    to ensure regulatory compliance.

    In the case of goods that have to be moved across multiple

    states to be kept in distribution hubs and/or be made

    available in retail stores, players have to navigate multiple

    check posts in each state of transit. In addition, they need to

    manage a number of road permits/statutory forms/transit

    pass requirements, as stipulated under respective state VAT

    legislations. To add to the woes, compliance requirements can

    often lead to delays (at times running into days), which can

    severely impair efciency and can add to the cost of the

    supply chain.

    Most of the state VAT legislations and CST legislation and

    compliance requirements were put in place between the

    1950s and 1970s. These are in line with the then-prevailing

    “manufacturing” practice, which involved the bulk movement

    of goods in a full truck/container load format. VAT was

    implemented in India during 2005–2008 and makes use of

    updated terminology and contemporary concepts associated

    with a sophisticated VAT/GST from a developed economy.

    Unfortunately, in India, the basic concepts of the movement

    of goods’ regulations continue to be outdated. The modern

    retail supply chain requires goods to be shipped in smaller

    quantities/portions. In addition, the carton, container or truck

    load format have now been deemed redundant. However, the

    current regime in India has not evolved adequately to embrace

    and incorporate such dynamic requirements. In addition, the

    compliance needs of invoice, delivery challans, permits, etc.,

    also make it extremely cumbersome for manufacturers and

    retailers to freely transfer goods to the desired destinations.


    supply chain






    Lack of




    The retail industry operates around various business andoperations formats, including the traditional stock and sale,

    consignment and concessionaire models. Each of these

    models has its own set of practices pertaining to transaction

    pattern, ownership and the movement of goods. The new VAT/

    CST legislations can be comfortably applied to the traditional

    platform of stock and sale; however, it will not be feasible while

    dealing with new formats of business models, as the various

    aspects of registration, ownership of goods, storage, invoicing

    and recording of transactions in books of accounts would be left

    open to interpretation.

    b) e-Commerce incompatibility

    e-Commerce retail has taken the Indian landscape by storm and

    has seen considerable growth in online shopping in the last four

    to ve years. e-Commerce is being hailed as the future of Indian

    retail, as an increasing number of consumers are nding it

    convenient and cost efcient to shop for goods in the comforts

    of their homes. e-Commerce retailers adopt various models of

    sale and delivery. The essence of survival in the marketplace

    is gauged by the speed (and accuracy) at which the ordered

    goods reach consumers. Delivery schedules initially spanned 7

    to 10 days; however, given the intense competition in the space,

    players are now struggling to deliver products between 12 and

    24 hours in many major cities.

  • 8/19/2019 Movement Goods India


    14 Movement of goods in India







    It has already been established that the speed of delivery is the

    unique selling proposition of e-retail. As a result, it is difcult

    to x one set of governing legislations for the same set of

    goods. This is because the various VAT/CST legislations are

    not able to effectively accommodate the unique features of the

    e-Commerce industry. On account of these gaps, e-retailers face

    regular routine issues at check posts, etc.

    c) Check posts

    Check posts were traditionally put in place to monitor the

    movement of goods and prevent smuggling, as well as the

    illegal entry of spurious products. Gradually, check posts

    were established under the aegis of commercial tax/sales


    While check posts are not directly a serious hindrance to

    the movement of goods, the associated regulations, lack of

    automation (with the exception of a few states), inadequate

    stafng, unexplained and in-ordinate delays in clearance

    of consignments, unbridled powers of the check post

    ofcer to detain goods/levy penalty, detention of goods for

    inconsequential reasons, etc., have, for decades, burdened

    transporters. This has prevented the free movement of goods

    across the country for the purpose of trade and commerce.

    d) Compliance management costIndirect taxes should ideally be a pass-through cost, where

    the actual burden of payment is borne by the nal consumer.

    However, while eligible input VAT is creditable with VAT payable,

    the credit of CST and ET paid is not available as an eligible input

    tax credit, posing as an additional cost in the supply chain.

    Furthermore, the lack of inter-creditability of VAT, service tax,

    CST and ET leads to credit leakages, adding to the supply chain

    tax cost. Although domestic players have integrated these tax

    costs into their business over time, it poses as an impediment

    for foreign companies entering India.

    Agents /consultants

    TaxManagement staff

    Compliance cost

    Credit leakage

    The regulatory complexity associated with movement of goods

    in India, coupled with the lack of clarity in legislations, leads to

    businesses spending a large amount of money on third-party

    consultants, legal counsels, etc. Businesses also prefer to

    ofoad work pertaining to documentation and liaison with tax

    authorities to third-party consultants/agents with expertise

    in the relevant eld. Furthermore, training an in-house teamregularly to apprise them of the latest trends and changing

    regulations adds up to the tax cost budget.

    e) Lack of procedural clarity

    Another impediment in the free ow of goods in India is the lack

    of clarity in procedures with regard to VAT/CST/ET regulations.

    Every state in India has put in place various forms, permits

    and other documents that need to be produced /veried for

    the unhindered movement of a consignment. The paperwork

    includes the necessary invoice, self-declarations, permits from

    tax authorities and forms (in the case of specied goods). State

    governments are ever watchful of goods entering and exiting

    their borders. Due to high tax implications, goods are subject to

  • 8/19/2019 Movement Goods India


    15Movement of goods in India

    heavy scrutiny at the various check posts established by states.

    States are faced with the complex task of ensuring sufcient

    checks for the collection and maintenance of appropriate

    information/records regarding the movement of goods, while

    simultaneously maintaining simple and hassle-free procedures.

    Businesses are plagued by the lack of clarity in the nature of

    documents required for movement, the process of obtaining

    these, as well as the items and persons liable to pay ET.

    Transactions such as sales, leased goods and intellectual

    property complicate matters further.

    f) Automation

    India is the land of information technology and takes pride in its

    export of software and growth of the information technology

    sector. However, it has lagged in modernizing the management

    of tax and regulatory requirements. Some states have made

    signicant efforts to automate processes pertaining to forms’

    procurement, permit procurement, online self-declaration,

    etc. However, the process remains manual or a combination of

    electronic and manual in a large number of states, resulting in

    the dealer spending substantial time and effort.

    2.3 Possible interventions by

    state/Central government (s)

    The movement of goods in India is currently teeming with

    complexities. Stakeholders are aware of the insufciency of

    the tax and regulatory environment in India in this regard.

    Businesses are pushing for a simplied tax and regulatory

    framework; however, the federal structure of the country,

    political conditions and division of legislative power make it a

    very onerous and cumbersome task. Nevertheless, the Centraland state governments could look to step in and facilitate the

    free movement of goods across the country.

    a) GST

    GST, by design, would transform the current indirect tax system

    from an origin-based model to a consumption-based one.

    GST is expected to replace central excise duty (or CENVAT),

    service tax, CST etc., as well as state taxes such as VAT and ET.

    Inter-state transactions, including stock transfers, for which

    the taxation model is still being debated, may be chargeable as

    per Integrated Goods & Services Tax (IGST). GST is expected to

    facilitate the availability of full input tax credit on input taxespaid at the time of purchase (of goods and services), as well as

    utilize the amount toward output GST liabilities.

    GST might come as a breather and help with the

    standardization, simplication and automation of compliance

    requirements associated with the trading and movement of

    goods, especially inter-state movement of goods. GST, when

    implemented, is expected to automate most of the compliance

    requirements (including forms/permits/way bills, etc.), thereby

    reducing the cost and effort for the industry.





    The GST structure has been the focus of discussion and debate

    for the Central and state governments for a number of years.

    It is imperative that the governments nd a collective solution

    soon to the disputes on the GST structure and proceed withimplementation for the benet of the industry and the country

    at large.

    b) Self-declaration

    Given that GST might still be a couple of years away from

    implementation, state governments can adopt measures, in the

    meantime, to simplify and strengthen the process of moving

    goods across the country. This could also aid in implementing

    the GST structure in time.











  • 8/19/2019 Movement Goods India


    16 Movement of goods in India

    In a number of states, the movement of goods warrants

    the procurement of waybills, road permits, etc., from the

    authorities. Such paperwork needs to be lled up manually

    and needs to be carried with the goods in movement. Even in

    states where such procurement of waybills, road permits, etc., is

    automated, authorities intervene to release the online


    Some states that have tested the model of self-declaration by

    the dealer moving goods into and outside the state, without

    intervention by VAT authorities, have been successful in

    simplifying the goods movement process. In the self-declaration

    model, the dealer moves goods based on a self-declaration (with

    the details of the goods moved), which is available to the VAT

    authorities on-line for review/scrutiny at any point in time. Such

    self-declaration can be assessed for accuracy during the course

    of the annual assessment process or during any of the audit/

    investigation process.

    Given the success story of the self-declaration model, VAT

    authorities in all of the states could consider its implementation

    to expedite and simplify the movement of goods.

    c) Cross-state automation

    The current requirements of statutory Form C (for charging

    concessional rate of tax on inter-state sales) and statutory Form

    F (for supporting sales tax exemptions on account of stock

    transfers) are driven by the need of the VAT authorities of the

    sending states to validate whether the concessional rate and

    the exemption from CST on stock transfers have been ttingly

    claimed. The lack of visibility into the dealer database in the

    buying state triggers the need for the sending state to demand

    manual copies of Form C/Form F (which have to be procured

    by the dealer from the VAT authorities of the buying state) to

    validate the claims to concession and exemption made by thesending dealer.

    Automation of the VAT/CST registered dealer database (dealer

    database) across the states and of the buy/sale transactions

    in the sending and buying states, along with on-line inter-

    connectivity between the states, could provide visibility to

    both the sending and receiving states on the transaction being

    undertaken. A review of the dealer database, either during

    the process of assessment or at any other point in time, would

    prove the eligibility of the transaction, along with allowing

    dealers to avoid the cumbersome process of procurement and

    issue for statutory forms for every transaction/consignment.

    Regardless of the implementation time of GST, states

    could explore the suitability of undertaking robust cross-

    state automation.

    d) Check post improvisation

    The most critical issue faced by parties moving goods through

    check posts pertains to the delay in the clearance of goods,

    often on account of detention of carriages at check posts. In

    most cases, such delays (and detentions in relevant cases) are

    triggered by the lack of sufcient training and tax knowledge

    in the case of ofcers manning the check posts, as well as the

    inadequacy of computerization. As a result, ofcers have to rely

    heavily on the manual checking of goods and documentation.





    Check posts have largely remained the same since their

    creation. Nevertheless, a few states have managed to bring in

    reasonable computerization to hasten the clearance of goodsand provide online data to VAT authorities for scrutiny. State

    governments across the country could think about the benets

    of investing in deploying suitable computerization at check

    posts, ensuring adequate stafng for speedy clearance of goods

    and avoiding unwarranted/unjustied detention of goods.

    e) Legislative prudence

    Central and state legislations governing the movement of goods

    in India have not kept pace with the growth and evolution of the

    marketplace and in this context, especially the retail industry.

    The legislations have not adequately accounted for and adapted

    to the explosive growth of retail trade and e-Commerce.

    Another concern is that existing regulations are ambiguous

    about documentation requirements. The resulting consequence

    is open to interpretations at the ground level, leading to

    perceivably random delays and possible detentions.

    With GST in sight, it seems to be the right time to ramp up rules

    and regulations to provide clarity on procedures and simplify

    the movement process.

  • 8/19/2019 Movement Goods India


    17Movement of goods in India

    2.4 Comparison with China (tax

    and regulatory)

    China is similar to India in terms of size, population, number

    of states/provinces etc. Given the growing comparison and

    competition with China for economic supremacy, a broad

    review of the efciencies/inefciencies surrounding the

    movement of goods in China could provide a template for India

    to review its policies and regulations and accordingly make

    them more conducive.

    In China, VAT is levied on the supply of goods and related

    services such as processing and repair and Business Tax (BT)

    for services including transportation and construction. VAT is

    payable at 17% and BT at 3% to 5%.

    VAT in China is levied and administered by the local

    municipality (called county). As such, VAT rates, compliances

    and procedures differ with each county. Furthermore, the

    transfer of goods from one branch to another for the purpose

    of sale is also treated as a supply of goods, regardless of

    whether any consideration is paid (unless the branches are

    located within one county).

    China is on the cusp of introducing its most ambitious VAT

    reforms in many years, the VAT pilot, which has sought to

    merge BT and VAT in a phased manner throughout the country.

    This measure, aimed at consolidating the Chinese indirect tax

    regime, may be instrumental in reducing the cascading effect

    and tax blockages faced by assessees due to non-creditability of

    BT and VAT.

    In relation to the movement of goods, China has managed

    to provide an environment for free movement across the

    length and breadth of the country without intervention by

    tax authorities on a consignment-to-consignment basis.

    Furthermore, China has largely managed to de-regulate the

    movement of goods by doing away with check posts, permits

    or statutory forms and relying instead on tax lings/self-

    declarations made by assesses. This has enabled dealers in

    China to freely access markets across the country, resulting in

    all-round development of trade and commerce.

    VAT administration and collection in China seems to largely

    resemble that of India. However, China seems to have

    made substantial progress in simplifying tax and regulatory

    requirements for the movement of goods. This has helped

    improve the trade and commerce environment within

    the country.

    The Indian Government could consider a comprehensive

    analysis of the Chinese VAT structure and procedures involvedin the movement of goods. The best practices hence understood

    and identied could be followed in the country to enable faster

    and smoother movement of goods.

  • 8/19/2019 Movement Goods India


    18 Movement of goods in India

    Parameter Under Indian VAT Under China VAT

    Applicability VAT on the intra-state sale of goods VAT on the supply of goods and related services

    such as repair and processing

    CST on the interstate sale of goods BT on the supply of specied services, including


    ST on the provision of services

    Payable by Person affecting sale for VAT and CST Person affecting supply

    Person providing service for ST

    Standard Rates VAT @ 4%–15% VAT @17%

    CST at 2% or the VAT rate BT @ 3%–5%

    ST @ 12%

    Levied and administered by VAT by the state government Levied by the Ministry of Finance

    State Administration of Taxation (SAT)

    CST levied by the Central Government and

    administered by the state government

    Rules formulated by county/municipality

    ST by the Central Government

    Return VAT and CST on a monthly/quarterly basis May range from one day to one quarter

    ST is bi-annual

    Statutory Forms Form C for inter-state concessional rate sale None

    Form F for stock transfer

    Road Permits / Waybills Applicable in most states for both inbound

    and outbound movement of goods

    Not required for the movement of goods

    between counties

    Check posts Multiple commercial tax check posts to track

    goods in every state

    No VAT related check posts to monitor/control

    the movement of goods between counties

    Comparison of the VAT regimes of India and China

  • 8/19/2019 Movement Goods India


    19Movement of goods in India

  • 8/19/2019 Movement Goods India


    20 Movement of goods in India

    3. Conclusion

  • 8/19/2019 Movement Goods India


    21Movement of goods in India

    India is positioned to become an economic super power in the near future. The traditional Indian store-based retail market and the

    new entrant e-retail would together post sizeable growth, driven by the increased size and buying power of Indian consumers, as

    well as greater exposure to global markets. However, the poor road infrastructure, inadequate technology and service levels, scarcity

    in manpower skills, and complex tax and regulatory policies, especially with regard to the movement of goods within the Indian

    boundaries, threaten to slow down this growth.

    In this backdrop, corporate entities could consider reviewing their supply chain and logistics operations. They could then identify

    improvement opportunities in terms of collaboration with vendors, enhanced sales and operations planning, and technology

    deployment. The need of the hour is for the government to rapidly improve road infrastructure and take bold steps to streamline

    the movement of goods process in India and bring it at par with that of China and other rising economies. This may not be easy,

    considering the federal structure of the country and existing political pressures. Nevertheless, India has undertaken timely and

    daunting reforms in the past that have held the Indian economy in good stead, with the most notable being the introduction of the

    VAT regime.

    Immediate and structured steps in the implementation of GST may provide the much-needed relief to issues associated with the

    movement of goods in India. Indian businesses can only hope that it is introduced sooner than later and would pave the way for a

    simplied tax and regulatory structure for the movement of goods in India.

  • 8/19/2019 Movement Goods India


    22 Movement of goods in India

    4. Appendix

  • 8/19/2019 Movement Goods India


    23Movement of goods in India

    5.1 An expressway (also called motorway or freeway) is

    a controlled-access highway; it is a highway that controls

    entrances and exits by incorporating the design of the slip

    roads for entry and exit into the design of the highway.

    A controlled-access is designed for high-speed vehicular trafc,

    with all trafc ow and ingress/egress being regulated.

    Access-control should not be confused with the collection of

    toll. An expressway may be free to use and may not collect

    toll at all. Expressways are the most supreme roads in the

    Indian road network. These are six- or eight-lane highways withcontrolled access.

    The national highway system of India consists of approximately

    10,000 km (6,200 mi) of 4-laned highways that collect toll

    from users but do not have control of access and cannot be

    called expressways.

    Currently, a massive project is underway to expand the 

    highway network. In addition, the Government of India plans

    to add 18,637 km (11,580 mi) of expressways to the network

    by 2022.

    5.2 The Logistics Performance Index is based on a worldwide

    survey of operators on the ground (global freight forwardersand express carriers), providing feedback on the logistics

    “friendliness” of the countries in which they operate and those

    with which they trade. They combine in-depth knowledge of

    the countries in which they operate with informed qualitative

    assessments of other countries with which they trade. It is a

    weighted average of the country scores on the following six

    key dimensions:

    • Efciency of the clearance process (i.e., speed, simplicity

    and predictability of formalities) followed by border control

    agencies, including customs

    • Quality of trade and transport related infrastructure (e.g.,

    ports, railroads, roads, information technology)

    • Ease of arranging competitively priced shipments

    • Competence and quality of logistics services (e.g.,

    transport operators, customs brokers)

    • Ability to track and trace consignments

    • Timeliness of shipments in reaching their destination

    within the scheduled or expected delivery time

    This measure indicates the relative ease and efciency with

    which products can be moved into and inside a country.

    5.3 The Global Competitiveness Report (GCR) is a yearly

    report published by the World Economic Forum. The report

    assesses the ability of countries to facilitate high levels of

    prosperity to their citizens. This, in turn, depends on how

    productively a country uses available resources. Therefore, the

    Global Competitiveness Index measures the set of institutions,

    policies, and factors that set the sustainable current and

    medium-term levels of economic prosperity. The various

    variables considered are:

    • Institutions

    • Infrastructure

    • Macro-economy

    • Health and primary Education

    • Higher education

    • Market efciency

    • Technological readiness

    • Business sophistication

    • Innovation


  • 8/19/2019 Movement Goods India


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